Obamacare January 1, 2016 Effective Date

September 23, 2015

We want to remind clients who had less than 100 full-time and full-time equivalent employees in 2014 but who have 50 or more full-time or full-time equivalent employees in 2015 that what some have termed the "Obamacare hammer" now will fall on them effective January 1, 2016, and the hammer will fall on January 1 even if they have a group health plan which operates on a fiscal year basis rather than on a calendar year basis. Here are some points for these clients to consider:

1. How many full-time and full-time equivalent employees does my company have in 2015?

You only need to count "common law" employees, but a "leased employee" can be a common law employee, which is a fact sensitive question.

If your company is linked through common ownership or common owners with other businesses, you might need to count the full-time and full-time equivalent employees of the other businesses as your employees.

If you have a 401(k) plan, you already should be familiar with the common ownership or common owner rules since the rules under Obamacare are the same as the rules for 401(k) plans.

2. What's a full-time employee for purposes of determining whether you will be subject to Obamacare?

Under the general rule, a full-time employee for any calendar month in 2015 will be an employee who works on average at least 30 hours a week in such month or at least 130 hours in such month.

The calculation is a calendar month-to-calendar month calculation using an hourly employee's actual hours worked or, for a salaried employee, using either his or her actual hours worked, eight hours a day for each day worked or 40 hours a week for each week worked.

3. What is a full-time equivalent employee?

A full-time equivalent employee is no more than a legal fiction adopted to close a back door to circumventing Obamacare by hiring part time employees.

The number of a company's full-time equivalent employees is determined for each calendar month simply by dividing the total hours worked by all employees (other than full-time employees) by 120.

4. If you have at least 50 full-time and full-time equivalent employees in calendar year 2015, you will be subject to the Obamacare for all of 2016.

If you are subject to Obamacare for 2016, you will need to decide whether to "pay" or "play" for 2016. Note, however, that only your "full-time" employees will be taken into account under the "pay" or "play" rules but, equally important, note that Obamacare has an entirely different set of rules to identify who is a "full-time" employee for purposes of the "pay" or "play" rules. The rules to identify who is a full-time employee for these purposes are complicated and are outside the scope of this alert.

If you decide to "pay," you do not need to offer health care coverage to any of your full-time employees for 2016. But, if any of your full-time employees receive for any month a tax credit to purchase health insurance on an exchange in 2016, you can be assessed a tax equal to $167 a month times the total number of your full-time employees for that month (minus 30). For example, if you had a total of 50 full time employees that month and one employee receives a tax credit, the tax would be 20 (50-30) times $167 or $3,340 for the month. Finally, if you do offer coverage to some of your full-time employees but do not offer coverage to at least 95 percent of your full-time employees and their dependents, the coverage you do offer will be insufficient to shift you from "paying" to "playing" under Obamacare.

If you decide to "play," you will need to offer coverage to at least 95 percent of your full-time employees and their dependents, 95 percent simply being the dividing line between "paying" and "playing." If you elect to "play" and any of your full time employees receives for any month a tax credit to purchase health insurance on an exchange in 2016, you can be assessed a tax for that month equal to $250 times the number of your full-time employees who actually receive a tax credit for that month to purchase health insurance on an exchange. For example, if two employees receive a tax credit, you could be assessed a $500 tax (two times $250). Finally, if you want to eliminate the risk that you will be subject to any tax, you will need to offer coverage which has "minimum value" and is "affordable" to 100 percent of your full-time employees and their dependents.

If you decide to "play" and offer coverage under a health insurance product (as distinguished from offering coverage under your own "self-insured" group health plan), you will need to check on how much the cost to offer coverage through health insurance likely will increase in 2016 as a result of the requirement in Obamacare that the "small group market" starting in 2016 include groups of 51 to 100 employees.

Please contact Donald S. Kohla at 678.336.7140 or Jan G. Marsh at 678.336.7135 if you want to discuss any of the foregoing or Obamacare issues in general.